Solutions

Scope:

When an operator's shipbuilding contract is legally cancelled by shipbuilder in accordance with the terms of the contract, the refund guarantee is called upon and the refund made. However, site team and project expenses, currency fluctuations and any appreciation of the contract value will not be covered. This is what an AICOR protects against.

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Applies to:

Operators with transportation or production units under constructions or rebuilding, where there has been an appreciation of asset value over and above the contract value, or those who simply want to recover interest, currency or project expenses in the case of a contract cancellation.

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How it works:

The insurance indemnifies the operator up to the Sum Insured in respect of the consequences of non-delivery/abandonment/total loss including subcontractors. The Sum Insured is to be justified at time of cancellation or frustration of the Insured Contract(s) (the MOA(s) or Conversion/Retrofitting contract(s) based on the average of three independent qualified shipbrokers’ opinions of value at date of delivery anticipated under respective contracts. In this event, one shipbroker is to be appointed by the Assured, one by Underwriters and the final one to be agreed by the first two.

The Sum Insured is amended to “fixed and agreed” in the event that Sum Insured should become substantiated through pre-delivery sale of vessel or other justification and agreement with Underwriters.

In the event that an operator acquires the right to cancel any contract insured but elects not to do so, amounts up to the Sum Insured may be recoverable as sue and labour expenses on a daily basis in accordance with any indemnity agreed under a delay in delivery, or otherwise. Payment of such amounts shall simultaneously reduce the AIRCOR Sum Insured available by the equivalent amount.

Cover can be included to include insolvency of shipyard, as well as delay in delivery insurance. These elements are not included in the price range.

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Markets:

Lloyd’s.

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Price Range:

0.5% for physical damage (around 2.5% for insolvency).

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Self Retention:

Normally 5-10% co-insurance.

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Time to market:

Minimum 60 days.

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Scope:

Vessel or vessels are physically blocked from trading.

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Applies to:

Anyone trading in a geographical area where blockage is possible; and where the trade is crucial to the company's business.

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How it works:

The insurance responds if the vessel or vessels are physically blocked or trapped in ports, rivers, waterways, channels or similar due to congestion, accidents or external physical damage caused by civil risks, war risks, nature cats and force majeure events. The insurance can also be extended to include external blocking (the inability to access any of the foregoing). The insurance pays an agreed daily indemnity.

The insurance can also be purchased as a Trade Disruption Insurance or an Extended Loss of Hire Insurance where the catalogue of risks covered is wider and gives better protection where there is a chance that risks may occur outside the precise definition of Blocking and Trapping.

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Markets:

London, Norway.

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Price Range:

From 0.5% to 1.75%

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Self Retention:

From 7 to 30 days, sometimes on a fleet aggregate or event basis.

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Time to market:

30 to 60 days.

Scope:

Charterer fails to pay hire in accordance with contract.

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Applies to:

Any operator who finds that the value of a contract with one counterparty represents a significant part of their balance sheet. Individual vessels on particularly good charter terms or on long charters, specialised vessels unlikely to fetch a charter rate required to amortise the cost of adaption of the asset to the charter, should the charterer fail. Chance and cost of completing cover rises sharply once the operator becomes aware of potential issues. The insurance should be bought from a high level risk management and balance sheet assessment viewpoint.

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How it works:

Responds to situations where charterer is not paid following default or insolvency. After a waiting period (180 days but sometimes as low as 90) this insurance pays an agreed daily amount, less Replacement Charter Hire.

Availability of financial data on charterer (or rating) is crucial to price and availability, also the number of other operators who are in the market to insure the same risk.

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Markets:

Lloyd’s, Norway.

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Price Range:

1.75 - 2.5% - if counterparty is insurable.

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Self Retention:

10 % quota share retention, plus a waiting period ranging from 180 to 90 days.

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Time to market:

Minimum 60 days.

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Scope:

Contract termination insurance covers a loss of some significance which is collectible from an existing Loss of Hire policy. When market conditions are poor and an event causes a charterer to lawfully terminate a contract, you risk losing the long-term value of the contract and may have to redeploy at lower rates – or at worst layup. Contract Termination Insurance protects you against this amongst other risks.

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Applies to:

Operators where one or several contracts are particularly valuable to the overall operation of the company; and whereby termination of these contracts would have a considerable adverse effect on the company.

If client buys Loss of Hire cover, it makes sense to take out a Contract Termination insurance under the circumstances described.

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How it works:

Contracts can be terminated for several reasons including insolvency of charterer (see Charterers Default Insurance). Both parties to the contract are protected by the Force Majeure provisions of the contract, but market fluctuations cause each party's interest in cancelling the contract to fluctuate with the market. A physical damage triggering an offhire claim under a Loss of Hire policy may, although cancellation provisions are triggered, be perfectly acceptable to the charterer when charter rates are increasing. In situations where charter rates plummet (for example, the 2016 offshore services collapse) an event of this nature may lead to cancellation –or at best renegotiation – of charter contract.

Short-term exposure is protected through the Loss of Hire policy but the long term value of the contract is lost and the vessel must be redeployed at lower rates or at worst go into layup. Contract Termination insurance can be structured to respond from a catalogue of risks which starts with the total (or constructive) loss of the vessel and escalates through a medium-sized to large casualty (this depends on the cancellation provision of the contract) and takes into account the full Force Majeure Catalogue and includes Political Risk.

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Markets:

Norway, Lloyd’s.

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Price Range:

0.1% for loss of vessels, 0.5 - 0.75% for physical damage, around 1.5% for Force Majeure risks.

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Self Retention:

None for total loss, CP Cancellation trigger for casualty  and Force Majeure risks. (typically 30 to 90 days).

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Time to market:

Up to 60 days depending on scope; total loss and physical damage 14 days.

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Scope:

Primary Layer Loss of Revenue as a consequence of delays caused by named perils.

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Applies to:

All Ship Operators.

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How it works:

Mainstream H&M and P&I insurances both exclude the loss of revenue following a covered event. Primary Layer Loss of revenue insurance provides a H&M / P&I Exclusion buy back for such unavoidable losses suffered during the initial 14 days’ delay.

Unique Characteristics of the Primary Layer Loss of Revenue cover:

• Fixed premium / fixed cost (no reinstatement premium).
• Revenue / cash flow protection at primary level = budget accuracy as fixed premium.
• Fully customisable around clients’ needs (H&M perils only / P&I perils only).
• Policy dates can match H&M / P&I Policy dates.
• General conditions: a starting point, not a finishing line – fully customisable around individual needs.
• Standalone insurance policy, not linked to H&M, P&I or any other policy.
• Performance rewarding system: clients can benefit from own performance.
• Work efficient: no ad hoc work needed for renewals or claims processing as concurrent to mainstream H&M, LoH or P&I Policy.
• Cost efficient and hassle-free claims procedure: no surveyors / adjusters are sent.

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Markets:

Nordisk Marinförsäkring AB – Scandinavia.

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Price Range:

It can vary subject to: Size of Fleet / Type and Size of vessels / H&M and P&I claims' trend (frequency being an important element).

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Self Retention:

Minimum 1 day but varies by named peril.

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Time to market:

2-5 days.

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Scope:

Delay in delivery of a newbuilding, or conversion, following events falling within the Permissible Delay Clause (largely Force Majeure events) in the building contract. A Non-Delivery Insurance should be structured to pay at the time of exhaustion of the Delay in Delivery Insurance. Insolvency and Political Risks may also be included in the Non-Delivery Insurance but do not lend themselves to inclusion under Delay in Delivery due to the Waiting Time requirements under these policies.

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Applies to:

Operator with new building under construction or conversion in an increasing market; or where advantageous charter has been secured.

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How it works:

In the event of shipyards not delivering a vessel on the delivery date as per building contract triggered e.g. by Force Majeure events or physical damage to the yard, an agreed amount is paid out for each day of delay up to and agreed limit. The policy is structured like a Loss of Hire policy (except scope which goes beyond physical damage to the vessel) with a deductible period expressed in days and a limit also expressed in days (correlated to the cancellation provisions in the Shipbuilding Contract).

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Markets:

Lloyd’s, Norway.

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Price Range:

0.75% - 1.5% for physical damage only.

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Self Retention:

30 - 120 days depending on contract.

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Time to market:

Up to 45 days depending on scope, less than 2 weeks if physical damage only.

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Scope:

Loss of income or vessel if drugs are discovered onboard or as a consequence of vessels being detained during investigations.

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Applies to:

Anyone trading in a geographical area where smuggling is a possibility – or as a global umbrella cover.

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How it works:

The insurance responds should the vessel be detained due to actual discovery of drugs onboard including crew accommodation, due to investigations based on specific suspicions where no drugs are found, and investigations targeting drugs where there is no suspicion and no drugs are found. The insurance pays an agreed daily amount for the number of days required by client. This is often tied to the total loss trigger, normally 360 days. The daily indemnity will thus be payable every day after the exhaustion of the deductible period until the exhaustion of the policy or the vessel is declared a total loss.

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Markets:

London, Norway.

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Price Range:

Around 0.02% for Drug Total Loss - USD 2,500 to 5,000 per vessel (depending on sum insured) for Drug LOH

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Self Retention:

2-5 days

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Time to market:

Less than 7 days

Scope:

This is not an insurance solution but a document handling and delegation platform for insurance documents.

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Applies to:

Any organisation within the marine industry who handles large amounts of insurance documents and/or has the need to share them with a multitude of parties (banks, ship managers, investors, superintendents, fleet managers, accounting departments etc.). We have found that there is an increasing demand for this service following and increasing trend of acquisitions, amalgamations and mergers.

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How it works:

Your insurance documents (Covernotes, Agenda, Schedule of Assureds, Debit-/Credit Notes) are automatically available on a Rapid SSL Secured server accessible through an auto generated password to our client's principal contact. The principal contact has access to a delegation system enabling them to delegate access on a ship-by-ship and document-by-document basis – within time parameters – to the parties they chooses. The system delivers an overview and reminder of delegated authority at regular intervals to avoid delegation being active when it should not.

The system has advanced search functions and provides a Dropbox-esque space for the sharing of crucial documents. The latter can also be used to store documents, for example, those provided by P&I clubs. A claims handling functionality is also under development.

We are only offer this service from our offices operating on a INS200+ platform (at present Norway and Singapore).

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Markets:

Norway and Singapore office only at present.

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Price Range:

Free if you are a 100% a Lockton Edge client; a fee applies for the handling of other brokers’ documentation.

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Self Retention:

Not applicable.

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Time to market:

Immediate if you are already a client.

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Scope:

Covers an ever increasing array of electronic equipment on-boardships against physical damage where the individual component has a value less than the vessel's Hull & Machinery deductible, and therefore is not covered other than for catastrophe claims.

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Applies to:

Shipowners and operators wishing to reduce the impact of electronic equipment damage and loss.

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How it works:

Covers physical damage to electronic equipment and devices ranging from navigation- and communication systems to crane control- and machine monitoring systems. Cover is structured to coincide with the deductible on the vessel's Hull & Machinery policy, thus ensuring seamless continuity of cover with a much reduced client retention.

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Markets:

Germany

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Price Range:

EUR 3,500 - USD 4,000

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Time to Market:

14 days.

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Scope:

Prolongs – on identical terms to those offered by the shipbuilder – the shipbuilder’s guarantee to the later of 5 years from delivery or the vessel's first Special Survey. Contrary to standard guarantees, Extended Shipbuilders Guarantee insurance also covers off hire expenses, both for consequential damages and for time spent on repairing errors in design.

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Applies to:

Operators with large new building programmes, with specialised or high-spec tonnage, or anyone wishing to add an increased level of quality to the shipbuilding programme of their chosen shipyard.

The solution also provides a measure of protection of the operator's Hull & Machinery programme by removing consequential damages of errors in design. This may serve to keep insurance costs low or qualify for a premium discount.

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How it works:

Extended Shipbuilders Guarantee insurance covers the cost of repairing errors in design in accordance with the individual shipbuilding contract between shipbuilder and operator. The shipbuilding contract is subject to review by the lead underwriter following the signing of a non disclosure agreement. The policy is issued for 4 years with a rollover annually from Year 1. The shipbuilding guarantee is primary to this insurance.

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Markets:

Norway, Lloyd’s.

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Price Range:

1-2 % of primary guarantee amount of USD 5,000,000. Top up cover available on demand.

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Self Retention:

Consequential damage as per Hull & Machinery or Loss of Hire policy, Guarantee Claims subject to deductible between USD 250,000 and USD 500,000 depending on yard and ship type.

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Time to market:

Minimum 60 days.

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Scope:

Extension of the Warranty protection already in place in the Shipbuilding contract for a new building under construction for a combined period of up to 5 years. Recall costs (loss of time) can in some circumstances also be covered.

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Applies to:

Shipowners with capital intensive and complex ships, or builders thereof.

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How it works:

The availability and pricing of this insurance solution depends significantly on the yard. Having considered the yard itself, the insurer will wish to review the Shipbuilding Contract and specifically its warranty conditions. On approval, the insurance solution offered will utilise the exact warranty wording contained in the Shipbuilding contract but extend this in accordance with your wishes for a combined period (inclusive of the period under which the vessel is already under guarantee by the yard) of up to 5 years. The insurance does not cover claims that occurred during the period during which the shipyard warranty was in effect. The insurer expects to have new building team access and to be briefed of progress and any issues as the construction of the vessel proceeds. Recall insurance can in certain cases be arranged as an extension of any existing Loss of Hire programme, and subject to the deductibles of this programme.

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Markets:

Norway.

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Price Range:

1.75 – 3.00 % p.a. of insured amount depending on choice of period and deductible. Recall on request and in combination with an Extended Warranty Insurance.

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Self Retention:

USD 200,000 to 500,000 depending on vessel type and size, and your risk appetite.

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Time to Market:

60-90 days.

Scope:

A significant risk faced by operators trading in areas where political risk maybe an issue, is the risk of Expropriation and Confiscation. Where state-controlled private joint venture companies are involved this may however, come in many forms. A standard format of seeking protection against risks associated with this is having a London Arbitration Clause in the contracts. However, you will still need to collect the proceeds of the arbitration award and are therefore only halfway there. A Failure to Honour Arbitration Award Insurance (often purchased alongside a Confiscation, Expropriation and Deprivation Insurance)completes this picture.

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Applies to:

Anyone who has business in areas where political risk may be an issue, or those who are in joint ventures with state-controlled private companies.

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How it works:

Details of the Charter Party Agreements or other relevant contracts are disclosed tounder writers; and a legal opinion is provided to ensure that they have been legally executed and comply with local law. Checks are also made to verify that contracts are subject to (e.g.) English jurisdiction and arbitration. The policy excludes any loss arising from any dispute under these contracts –unless and until such dispute has been resolved or a final and binding arbitration or court award is obtained in the Insured’s favour in accordance with the arbitration/jurisdiction provisions set out in these contracts. The policy shall additionally indemnify the Insured for loss of the insured interest up to the sum insured hereunder arising from failure of the(applicable) courts/authorities to uphold the court/arbitration award.

Waiting period is normally 180 days but 45 days from date of arbitration/court award.

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Markets:

Lloyd’s.

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Price Range:

1-2% depending on country.

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Self Retention:

Normally 5-10% co-insurance.

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Time to market:

Minimum 60 days.

Scope:

Freight Interest insurance covers the assured’s economic interest in the long term freight interests of the ship.

Freight, Demurrage & Defence (in short: Defence insurance) provides cover of shipowners, managers and charterers for legal and other costs incurred in establishing and defending claims which arise out of an event occurring during the period of insurance/entry.

Such claims must arise in direct connection with the ownership, operation, acquisition or disposal of an insured vessel, or in respect of the assureds’ interest on the vessel.

The cover is at the sole discretion of the Insurer/Association and the Insurer/Association has the right to control and/or direct the conduct or handling of any case. This cover is provided by the P&I Clubs that are members of the International Group of P&I Associations as a separate Class or by specific Defence Mutuals.

Hull & Machinery covers the Assured’s economic interest in a ship and its equipment’s capital value by covering total losses and cost of damage repairs. It also contains an element of liability insurance and costs of measures to avert or minimise the loss – including salvage awards and general average.

Our specialist insurance solution allows our clients to recover costs that arise from loss or damage so they avoid or minimise them (known as ‘sue and labour’). Hull & Machinery insurance also covers the costs of salvage and general average, as well as liabilities to third parties involved in a collision.

No matter which business sector a client is in – or where they operate – Lockton Edge and the wider Lockton Marine network has the experience and market influence to secure the best value terms and premium for vessels and equipment. We are experienced in developing bespoke solutions to handle all kinds of complex risks.

Hull Interest insurance covers the assured’s economic interest in the capital value of the ship. The hull interest insurance also covers excess collision liability.

Scope:

Loss of Hire insurance covers daily loss of income following physical damage to the vessel. As a general rule, the loss must be recoverable under the Hull & Machinery cover but can be extended to respond to war risk and certain non-physical events.

Scope:

Situations when the assured has been forced to accept an arbitration clause without a well recognised jurisdiction and is concerned that the arbitration will not be objective.

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Applies to:

Shipowners and operators trading in third world or rogue jurisdictions.

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How it works:

Manifest error is designed to respond in the event that the assured objectively considers it has suffered an injustice where it has been obliged to accept binding arbitration or the ruling of a Court where the law has not been applied based on facts:

• Firstly, by referral to an independent lawyer to review the facts and the applicable law, and
• Secondly, should the lawyer consider that the assured has paid more or received less than it should have done, the policy will pay the difference, subject to limits.

A variation of the foregoing is where you deem the arbitration result to be satisfactory, however, the arbitration award is not paid, and the jurisdiction does not uphold the award. This exposure would be covered under a "Failure to Honour Arbitration Award Insurance".

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Markets:

Norway.

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Price Range:

1.5 - 3%

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Self Retention:

Minimum 10% co-insurance.

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Time to market:

Minimum 60 days.

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Scope:

The Lender’s interest can be put in jeopardy following a major pollution event. Whilst Protection and Indemnity Insurance (P&I) provides significant cover, the Lender is still exposed to the risk of loss of their collateral should this initial cover prove inadequate.

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Applies to:

Ship finance institutions for vessels trading – in particular to the United States.

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How it works:

Mortgagee’s Additional Perils Pollution Insurance (MAAP) provides the Mortgagee with protection:

• Against the arrest of a mortgaged vessel or the seizure of hull claims proceeds following a P&I Peril where the owner’s insured limit of liability is insufficient.
• For amounts in excess of the current limit of indemnity provided by the International Group of P&I Insurers (currently up to USD 1 Billion per vessel).  
• Where a responsible jurisdiction seizes a vessel as a contribution towards costs or the amount of any judgement.

Cover can be arranged for up to 120% of the outstanding loan on the vessel and a Policy can be taken on a specific basis or, more usually, for a portfolio of financed assets.

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Markets:

Lloyd's, Scandinavia.

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Price Range:

Dependent on spread of risk and trading patterns

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Self Retention:

Nil

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Time to market:

Less than 7 days.

Scope:

Comprehensive and effective insurance on risks affecting security or collateral is a vital component in any asset financier’s risk assessment and mitigation process. Mortagee’s Interest Insurance (MII) provides a valuable level of additional comfort to the Lender that an insured loss will be indemnified in the event of the original insurance proving unenforceable.

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Applies to:

Ship finance institutions.

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How it works:

MII policies will provide cover in the event that the Borrower’s original insurances do not respond as a result of:

• Non-disclosure or misrepresentation by the Borrower or its agents to the original Insurers.  
• Unseaworthiness of a vessel.
• Breach of a Policy Warranty, whether expressed (for example a trading restriction) or implied (such as the lapse of a vessel classification or non-compliance the ISM).
• Deliberate casting away of the vessel.

The basis of cover can be for an indemnity of up to 120% of any loan value to cater for the necessary costs and expenses the Lender might incur in protecting their interest.

Cover can be arranged on the basis of a single loan or, more usually; on a comprehensive portfolio basis.

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Markets:

Lloyd’s, Scandinavia.

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Price Range:

Dependant on spread of risk

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Self Retention:

Nil

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Time to market:

Less than 7 days.

Scope:

Covers the inability to collect stage payments from yard or guaranteeing bank following yard insolvency or inability to complete constructions.

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Applies to:

Buyers of vessels where large instalments are paid in ahead of delivery and where there are questions related to the Refund Guarantor's ability to pay, aggregation of exposures on the hands of the Refund Guarantor, or an intolerable risk to your balance sheet.

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How it works:

In the event of default triggering cancellation as defined in the building contract – upheld by a competent court or arbitration where refund guarantor subsequently does not respond – this insurance pays after an agreed waiting period (e.g. 180 days).

The cover can be extended to include credit and political risks (not included in price range).

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Markets:

Lloyd’s.

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Price Range:

1 - 2.5%

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Self Retention:

Normally 5-10% co-insurance.

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Time to market:

Minimum 60 days.

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Scope:

Shipyard fails to deliver newbuilding or converted unit in accordance with contract.

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Applies to:

Operator with newbuilding under construction or conversion, in an increasing market or where advantageous charter has been secured. The Builders Risk and refund guarantee will only refund actual contract cost and building contract provides only limited compensation for delays.

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How it works:

In the event a shipyard does not complete the unit in accordance with the building contract triggered by e.g. the occurrence of an insured peril under the Builders Risk Insurance, a Force Majeure or Insolvency event, this insurance pays an agreed lump sum amount to cover loss of contract and increased costs of completion or building elsewhere. Often purchased together with a Delay in Delivery Insurance.

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Markets:

Lloyd’s, Norway.

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Price Range:

0.15 - 0.5% not including insolvency.

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Self Retention:

Nil.

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Time to market:

Up to 60 days depending on scope. Less than 30 days if physical damage only.

Lockton Edge’s team of brokers has a unique breadth of experience gained from working in P&I Clubs; both in underwriting and claims; for shipowners in operations and at sea in addition to many years of broking throughout the world.

This blend of individual backgrounds has enabled Lockton Edge to develop unparalleled sectorial knowledge. In consultation with our clients, we work to create P&I programmes specifically suited to their respective trade or industry sector; providing the broadest scope of cover at a commercially competitive price.

We use our thorough understanding of the standard platform in conjunction with our knowledge of our client’s operations to recognise exposures that require bespoke covers.

Our global marine network of offices now includes the world’s largest P&I broking team in Lockton P.L. Ferrari. This enables our P&I specialists to readily connect with clients on a day-to-day basis to assist in meeting their P&I needs.

Scope:

Loss arising from increased costs incurred after a Scrubber Breakdown due to the price differential between compliant and non-compliant fuels.

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Applies to:

Anyone liable for extraordinary fuel expenses, where insufficient or no Loss of Hire is in place, or where there is an interest in the commercial appeal of a vessel’s cost-efficient operation.

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How it works:

IMO set a global limit for Sulphur in fuel oil used on board ships of 0.50% m/m (mass by mass) in 2020. Shipowners worldwide responded by having Exhaust Gas Cleaning Systems, known as Scrubbers, installed on their vessels, providing the benefit of saving costs on bunkers as they can continue sailing on heavy fuel oils rather than switching to more expensive compliant fuels. The Scrubber itself – once installed – is considered a part of the vessel and is thereby covered under conventional insurances such as H&M and LOH. However, if the Scrubber malfunctions but the vessel is not put off-hire, extraordinary fuel costs will not have any coverage. The Scrubber Breakdown Insurance covers the cost differential between compliant and non- compliant fuel limited to the daily amount and limited to the total number of days agreed by the insurer. It is triggered by a breakdown / loss of the Scrubber equipment recoverable under the terms of the Nordic Plan. Depending on the size and consumption of the vessel, the total exposure could exceed USD 70.000 per day.

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Markets:

Norway

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Price Range:

About 25% of LOH

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Time to Market:

Less than 7 days

Scope:

The insurance – which is subsidiary to ordinary P&I cover - is triggered by a total loss and covers the assured’s added costs for recycling a wreck at an EU-verified yard. Transportation and recycling costs are included, as is a reduction in the proceeds of sale. Cover limit is up to USD 5 million.

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Applies to:

Shipowners wishing to make sure that the recycling of a ship – which is a total loss under the insurance policy – is carried out in compliance with the Hong Kong Convention, even if these additional costs exceed the cover extended by his removal of wreck insurance. Importantly the insurance is also available to shipowners where the vessel’s flag state is not a signatory to the Hong Kong Convention.

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How it works:

Sustainability, transparency and environmental issues have become increasingly important factors to businesses across the globe, even more so following the outbreak of COVID-19. In addition to legal/regulatory exposures there are also reputational risks both within the industry and its finance institutions, and also to the press and the public at large. It is quite telling for the world we live in to see how industry participants are now calling for more urgent actions than their industry associations and indeed regulators currently require. Sustainable Recycling insurance enables shipowners to make the environmentally considerate choice when it comes to recycling a total loss without having to worry about the financial cost of doing so.

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Markets:

Norway.

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Price Range:

0.1 – 0.15% p.a. of insured amount.

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Self Retention:

None.

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Time to market:

14-30 days.

Scope:

Under some circumstances insurance products can solve problems related to financing. One such example relates to the guarantee required from the Bareboat Charterer under a Tax Lease Structure.

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Applies to:

Operators not having the Balance Sheet required to support a joint and several guarantee under a Tax Lease or similar structure, who are also willing to support the guarantee with other non-financial assets.

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How it works:

A guarantee consortium involving parties associated with – and including the – Bareboat Charterer is set up and the appropriate financial disclosures are made. The Guarantee Consortium is insured to the benefit of the Tax Lease company and its constituent members for the entire period up to date where Bareboat Charterer declares option of purchasing the vessel. The premium is paid by the Guarantor. A legal due diligence procedure is carried out, in particular addressing the bankruptcy procedures that apply under the local laws of the Guarantor. Since insurance must normally be provided ahead of the delivery of the vessel, a proportion of the premium is prepaid and retained as a capacity charge.

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Markets:

Lloyd's

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Price Range:

0.50% - 1% depending on structure

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Self Retention:

None

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Time to market:

Up to 90 days.

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Scope:

Trade Receivables account for up to 40% of a typical corporate’s current assets – even more for the assets of traders and financiers. Trade Credit Insurance can be a vital tool in securing significant exposures as well as playing a crucial role in credit management and in the availability of and access to finance.  

With regards to banks, when properly structured, Credit Insurance can have important ancillary benefits in the management of aggregations and even regulatory capital (as a Basel II compliant Credit Risk Mitigant).

Cover is readily tailored to the demands of an individual transaction and can secure against exposures arising both before and after the delivery of goods or commodities. This is especially important where bespoke manufactured goods are involved; increasing production costs and supply whilst reducing the ability to locate alternative buyers.

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Applies to:

Operators, traders and financiers with substantial trade receivables.

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How it works:

Cover can protect a seller or their financier against the potential loss before shipment of:

• Costs and expenses incurred up to the date that the contract is frustrated.
• Additional costs in liquidating contracts with sub-contractors and suppliers.
• Loss of expected profit.

Cover will respond to the financial failure or non-performance of the buyer.

After goods or commodities have been delivered cover will protect an exporter against the loss of unpaid invoices (inclusive of profit) arising from non-payment by the Buyer or any guarantor (including non-honouring by the opening bank of any letter of credit).

Cover can be arranged for single exposures or on a portfolio basis.

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Markets:

London, Singapore, other European Insurers

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Price Range:

Dependent on turnover, industry and spread of risk.

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Self Retention:

Typically 10% co-insurance

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Time to market:

Non-binding indication within 72 hours. Full underwriting to take 30-60 days.

Scope:

Whole or partial deprival of income following events (physical and non-physical) that take place away from the operator’s asset (vessel, rig or otherwise) for example, the closing of a waterway or port, failure of an onshore facility to deliver, the inability or extra cost of discharging, reduction of charter hire following force majeure events, weather, expropriation and confiscation, quarantine, arrest or detainment as covered by P&I, the introduction of new legislation or reinterpretation of existing legislation.

The product generally comes in two formats: a high limit high retention program individually tailored to the client's needs and contracts; and a low limit, (e.g. USD 5 million) low retention (e.g. 7 days capped at 15 days per event involving several vessels) more generic cover.

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Applies to:

Operators who deliver marine transportation or production services integrated in the wider value chain and with income dependent on all components of this logistical chain delivering as scheduled, e.g. on a Contract of Affreightment. Traditional buyers of the product include operators in LNG/LPG, Chemical, Automobile,or Energy fields.

Recently more generic products related to a wider part of the marine industry has become available.

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How it works:

An insured event occurs and triggers payment of a declared daily amount, up to an agreed limit either expressed in USD or in number of days.

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Markets:

Lloyd’s, Norway.

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Price Range:

0.4 - 5% depending on scope and stretch.

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Self Retention:

7 - 15 days, or higher USD retentions in return for significant limits.

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Time to market:

Up to 60 days depending on scope.

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Scope:

War Risk insurance covers total loss and damages, collision liability, hull/freight interest, loss of hire, owner’s liability (P&I) including occupational injuries, as a consequence of war-like hostilities, civil unrest, sabotage, terrorism, arrest, seizure etc.